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“Price is what you pay, value is what you get“
Warren Buffet
If you ask someone to tell you the value of something, chances are that the first thing they’ll do is try to put a price tag on it, like a bizarre version of ‘The Price is Right’.
Louboutin shoes? £600. Package holiday to the Algarve? One and a half grand.
It’s an unfortunate bi-product of the way we’re taught to view the world. That the cost of an item is indicative of its value; that if something costs a certain amount of money, then that must mean that the value is equal. A £500 bottle of 2010 Dom Perignon champagne for instance, must cost that amount because the taste is so exquisite that it merits the price tag.
Take cars for instance. To someone who doesn’t know a great deal about cars, the price tag is indicative of its value. A £60k Mercedes feels of a higher value than a £4k Skoda. Why? If you asked different people, they would give you a range of answers. Perhaps because of the quality of the engine, or maybe the lavish leather seating, or maybe even just because when you open the door, a built-in light flashes on, projecting the fancy Mercedes logo onto the pavement. With all its bells and whistles, the Mercedes has – at a glance – more value than the Skoda. When we try and put a number on the value, we take for granted that the cost of the item is the amount of value we receive.
We reflect this flawed thinking onto much of our lives and slowly begin to equate cost with value. If something is priced at a certain amount, then its value must be worth its cost. Right?
Somewhere deep down inside, we all know that this actually isn’t the case. If you encourage people to stop and think about this a little bit, they’ll remember that value is subjective. We’ve just become so conditioned to viewing the world in terms of price and value that we’ve forgotten it. My key to getting people to remember this, is showing them the cost of something that they personally don’t value. For some people it’s designer clothing, for others its niche collectables like stamps or vintage comic books – but I think the best example is shoes.
My dad (somewhat notoriously) won’t pay more than £20 for a pair of shoes. Ever. If you were to suggest to him that he should buy a pair of Bottega Veneta shoes for the tidy sum of £1,400… he’d laugh in your face – because to him, the value of a pair of shoes is simply the value that you get from being able to walk down the road.
Now I’m not saying that those shoes aren’t worth £1,400 full stop; I’m sure that somewhere out there, there’s an avid collector of designer shoes who’d gladly pay that sum to add to his collection – and more power to him – but the value that my dad and that particular man credit to a pair of shoes is wildly different.
Value, ultimately, is in the eye of the beholder.
Another easier example to grasp is holidays.
The cost of scaling Everest as a tourist is somewhere between £20k to £90k – depending on how safe you want to be on your trip up. To an avid mountaineer, who has spent the last decade of his annual leave scaling the world’s largest peaks, that may very well be a fair value. On the other hand, there are those amongst us who spend their year waiting for the opportunity to pay a good few thousand to go watch the Monaco Grand Prix from a yacht in the marina. And finally, there are those among us who prefer to barely spend anything at all, hitchhiking through a series of hostels in Eastern Europe.
If you were to take these three hypothetical people and switch their holidays around, you’d find that few of them would agree that the value of those trips matched the cost that they’d have to pay.
The mountaineer may say that he’d never pay thousands of pounds to sit on a boat watching cars whizz past; the car enthusiast would be aghast at staying in a series of decrepit hostels in post-soviet countries, regardless of the cost; and the traveller might scoff at the enormous expense of what he would see as a week of trudging up rocks in freezing weather.
Value is something unique to each individual, whether it be shoes, holidays – almost anything you can conceive of. However, we’ve become used to thinking of value in terms of cost, as it’s the metric with which value has always been measured throughout our lives. When you look at something that you may not know a great deal about, the temptation is to treat the cost as an accurate representation of its value or worth.
So what’s the business lesson to be learned here?
Value isn’t something you can quantify. You can have educated guesses, of course, based on what the contractor is offering, and how much you trust them to deliver it, but ultimately you can’t know the value of a service provider or item until you’ve integrated it into your business.
You can have a contractor providing the exact same service to three very similar companies, and yet they’ll have wildly different views on the value. For one, the value might be determined by how quickly the service can be delivered. For the next, the value may be on how responsive the contractor is to complaints and help requests. For the last, it may be how much they enjoy going for your quarterly drinks with the contractor sales rep.
Only you, yourself, can determine the value that you find in the product or service after experiencing it, then measure that against the cost you paid. If the value you’ve experienced isn’t worth the cost that you’re paying for it – well, then it’s time to negotiate a new deal based on your experience of that value or – in a worst case scenario – get a new contractor.
Value isn’t a number, it’s a feeling. It’s the measurement of that intangible sense of satisfaction with something – and you can’t put a price tag on that.
